Government’s Defenses in AIG Bailout Suit Stand

(CN) – The government “should be afforded the opportunity” to defend itself against a class action challenging its 2008 bailout of American International Group, a U.S. judge ruled. Judge Thomas Wheeler of the U.S. Court of Federal Claims largely rejected a motion to strike the government’s affirmative defenses in a lawsuit filed by AIG shareholder Starr International Co. in November 2011. Starr and other shareholders claim the bailout amounted to an unconstitutional government “taking” without fair compensation. At the height of the financial crisis, the government gave the financial services company an $85 million revolving credit line in exchange for a 79.9 percent equity stake in AIG. The move came amid fears that AIG would collapse and take other Wall Street firms with it, causing unsustainable ripples in the U.S. economy. The government raised seven arguments in its defense: payment, contingent offset, equitable estoppel, waiver, hold harmless and severability. Starr moved to strike these defenses, claiming they should be tossed regardless of what the government can prove. The government countered that it should be able to present its defenses, especially given that Starr received “considerable latitude” in pursuing its claims. “The government’s argument is well taken,” Wheeler acknowledged. “Motions to strike affirmative defenses are disfavored in the Court of Federal Claims, particularly when there are disputed questions of law and fact, as is this case here. The government should be afforded the opportunity to develop the facts relevant to the defenses of payment, contingent offset, equitable estoppel, waiver, hold harmless, and severability.” Wheeler said the government “rightly points out” that he has expressed an interest in understanding “the full picture” of the bailout. “Allowing the government to put forth its affirmative defenses will create a more complete evidentiary record, and creating a record that reflects the full picture of what happened during the rescue of AIG outweighs any resulting marginal burden placed upon Starr,” Wheeler wrote. He refused to strike all but one defense: the defense of laches, which argues that Starr waited too long to file its claim. There was no unreasonable delay in this case, the judge explained, because Starr filed suit three years after the bailout and within the six-year statute of limitations. “Therefore, laches is not a viable defense under the circumstances of this case, and must be stricken,” Wheeler wrote. Wheeler certified two classes in March, and in July ordered the deposition of Federal Reserve Chairman Ben Bernanke.